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Five Naughty Stocks That May Turn Out Nice


In times of economic uncertainty, vice stocks, which are widely reputed to be recession-proof, are worth your consideration.


Uncertain about where the future is headed? Fearing that the world is about to end? Well, that is no problem for these five stocks, known as vice stocks, which are relatively safe and defensive. Vice stocks are companies that are in the tobacco, gambling, defense/weapons, and alcohol industries, and are notorious for being dividend payers and growers and also being somewhat recession-proof. Here are five that investors may consider looking at in the face of economic headwinds.

Cigarette companies generally pay nice dividends, and Lorillard Inc. (LO) is no exception. With a current dividend yield of 5.2%, this company has a yield almost four times that of the 10-year US Treasury bond. Most of the company's revenue (about 88%) comes from the Newport brand of cigarettes, and is a key cigarette supplier of the US Air Force.

Another tobacco company that has a strong yield over 5% is Altria (MO). Trading near the top of its 52-week range, this stock may seem a little rich. However, it may have just been bid up due to the defensive nature of tobacco stocks, and with 60% institutional ownership, this may be a place the smart money goes to hide from the apocalypse.

Even though its yield isn't as high as its tobacco cousins, Anheuser-Busch InBev (BUD) may be a great place to hide because alcohol is pretty recession proof: People buy it to sulk their sorrows and buy it to celebrate, a win-win for investors. With a yield above 2% and a valuation not as rich as some other vice stocks, investors may want to grab some Buds and invest in Anheuser-Busch.

Defense stocks, even though they are subject to political issues, may still be a good place to look. These stocks got hit hard last year, on fear of the fiscal cliff and defense spending cuts. If investors believe that Congress will do something to prevent the full effect of the fiscal cliff from happening (some 4% of GDP), then investors may want to look at General Dynamics (GD). With a yield north of 3%, investors who think that tanks, warships, and advanced communications systems are not going anywhere may want to consider adding the General to your army.

Lastly, another tobacco stock, for these are nearly recession proof and offer great yield. Reynold's American (RAI) sells through brands such as RJR Tobacco and Natural American Spirit, and with a current yield of 5.76%, investors may want to look at this stock to grab some yield.

Editor's Note: This content was originally published on by Matthew Kanterman.

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No positions in stocks mentioned.

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